Business | Markets
Slowing China bodes ill for the world
As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China's ability to plough on regardless at double-digit growth rates.
- By Geoff Dyer, Financial Times
- Published: 23:32 September 26, 2008
As the credit crisis unfolded over the past year, one of the few certainties in the global economy seemed to be China's ability to plough on regardless at double-digit growth rates.
Not any more. With Wall Street in tatters and Europe's and Japan's economies faltering, many investors are beginning to ask if China too might stumble badly. After five turbocharged years of accelerating growth, the Chinese economy is clearly slowing.
For some, this is no more than a welcome easing from unsustainable rates of expansion. "China is going from supercharged growth to fast growth," says Andy Rothman, a Shanghai-based economist at CLSA, the regional brokerage.
Yet a flurry of recent data and anecdotal reports have raised fears that the economy might be slowing more rapidly - and last week's surprise decision to cut interest rates for the first time in six years indicates that Beijing could share some of those anxieties.
The international crisis has also focused minds in China on the need to update a growth model that - despite huge improvements in productivity - is still too dependent on assembling goods for export without adding much value and on heavy industries that create pollution and suck in lots of capital.
A weak social security network, meanwhile, forces Chinese to save too much and spend less than is good for the economy. "Everyone knows the current system gives too much preference to producers over consumers," says a leading Chinese economist at a Beijing think-tank. "But now it is much clearer we need to put this theory into practice, which will not be easy."
Admittedly, China's problems are of a kind that most other countries would envy - few econ-omists predict that its growth will fall below eight per cent next year. But a harder landing would have big implications for commodities markets and could temper China's ability to cushion the blow to the global economy from the credit crisis. There could also be some unexpected problems at home, notably in the banking sector.
Signals
"There are lots of flashing amber lights," says Nicholas Lardy, a China economy expert at the Peterson Institute in Washington. "Even though most of the rest of the world would die for eight per cent growth, that still represents a big slowdown and we will have to watch to see what falls off."
The growing anxiety about China reflects the conflicting signals emanating from the economy. Take exports, one of the bedrocks of China's recent expansion, which have increased at more than 20 per cent a year. Given the US downturn, economists had been expecting a slide in exports this year. Yet these have continued to grow strongly, expanding 22 per cent in the first eight months of the year.
If there is a question mark over exports, there are even bigger concerns about the property market - which has been one of the principal components of the investment boom driving the Chinese economy in recent years.
Again, the headline numbers do not look too scary. In the year to August, house prices in the 70 biggest cities in the country increased by 5.3 per cent, even if that was down from a growth rate of 11 per cent earlier in the year. House prices did drop in August from the previous month - although by a meagre 0.1 per cent. The government has been an active participant in the slowdown.
Yet within those overall figures, there are huge variations. According to Zhang Shuxiao, an estate agent at 21st Century in Xian, a large industrial city in central China: "There is no bubble here like there is in Shanghai or Beijing. The market is very stable without any significant increases or price drops."
More from Markets
More from Business
Business Editor's choice
-
Do unemployment figures flatter to deceive?
Jobseekers and recruiters give out mixed signals ranging from optimism to downright despair even as official data show recovery
-
Banks can increase their share
Longer opening hours, more locations outside cities and lower charges can help
-
Geepas idea blossomed in Dubai
The journey led from a small shop in Bahrain to a $1.27b company in the UAE
